August, 2011:

World Energy Council chief says regional trading platforms are most effective option

South China Morning Post – 29 August 2011

Global efforts to cut greenhouse gas emissions using market mechanisms are likely to see the formation of regional emission-trading platforms that will converge over time, according to World Energy Council secretary general Christoph Frei.

And a carbon tax, although quicker and easier to implement, was still a politically challenging way for governments to meet their emission reduction goals, Frei said.

World leaders are to meet in Durban, South Africa, in three months to negotiate a way forward and come up with solutions to fight climate change caused by rising emissions of greenhouse effect-causing gases from human economic activities.

A key issue to be discussed will be an alternative framework for countries to cement their commitments to emission reduction. The Kyoto Protocol, signed in 1997 and which binds some nations to emission reduction targets, is set to expire next year. Talks in Cancun, Mexico, last year yielded only a broad framework, with no binding agreement on emission cuts.

While pressure is high on politicians to iron out a global emissions deal soon, Frei, a Swiss national, said it would be a tall order and that a more fragmented system would be more likely in the short term.

“The most likely scenario is that regional trading platforms will be formed instead of a global one, out of sheer effectiveness,” he said.

But then such platforms were likely to slowly converge, he added.

Frei said that as some 80 per cent of the world’s greenhouse gas was emitted by the energy industry, it sorely needed clarity on future financial burdens stemming from their emissions, as well as incentives on their reductions.

“If we don’t have security for our investments, we will have a big problem,” he said.

Under the Kyoto Protocol, companies that exceed their emission quotas are allowed to offset their excess by “buying” credits from other emitters that are more efficient in cutting emissions. As it is more cost-effective to cut emissions in developed nations, companies there tend to be the buyers and those in developing ones are usually sellers.

China and other developing countries are exempt from the emission limits. The United States opposed that exemption and has never ratified the treaty.

Europeans, the main buyers of the credits, have set up a sophisticated carbon credits trading platform, drawing experience from the US trading of sulphur dioxide emissions.

Given that more countries will voluntarily commit to carbon emissions reduction, Frei sees the establishment of national or regional exchanges for the trading of emission credits.

“Emissions trading is the most effective way, theoretically, to deal with emissions reduction,” he said. “The government does not decide on the winners and losers, they are decided by the market.”

Although carbon tax, another popular way to incentivise the reduction of emissions, is simple, transparent, and more predictable compared to emissions trading, he said taxes were never popular.

The use of feed-in tariffs to assure companies of returns and market demand

China’s decision to set a feed-in tariff of 1 yuan (HK$1.20) per kilowatt-hour for solar systems is a welcome boost to the renewables sector. A similar feed-in tariff in the Philippines is meeting resistance because of its impact on electricity prices.

Feed-in tariffs are higher prices assigned to renewable sources in recognition of the higher costs of producing energy, as compared to fossil fuel sources like oil and coal. In Spain and Germany, they led to significant growth in installed renewables.

Instead of simply awarding tax exemptions or grants for research and development, feed-in tariffs are efficient because payments are made to renewable energy actually sold to the grid, and requires no subsidy. When a renewable source matches the cost of fossil fuel power, it is said to be at grid parity.

Feed-in tariffs tend to initially raise the average price of electricity, as you are mixing currently expensive low-carbon sources with cheap fossil fuel ones. But this can be managed by a price regulatory body or open electricity markets, by operating at less than maximum capacity to prolong use, and can be offset by carbon credits, less demand for coal and oil, technological progress and economies of scale.

Why are feed-in tariffs needed now? They make it attractive for investors, entrepreneurs, engineers and scientists to devote their efforts to renewables. While a desire to showcase renewables is good, it alone is not enough to create confidence in the sector.

In contrast, feed-in tariffs are long-term contracts (whose price can be revisited regularly) to insulate renewable power plants from oil price swings. Once economies of scale and technology move forward, we should see better, more efficient and cheaper renewables, which means that feed-in tariffs can eventually be scrapped. Coal- and oil-powered energy systems have been around since the 19th century, and to expect that renewables will instantly catch up is unreasonable.

An excellent analogy is the personal computer and chip industry: while competition and innovation may have driven us to US$100 tablet PCs, it was the US military that first had to jump-start a market for the semiconductor industry many decades ago.

Feed-in tariffs are needed now. Waiting for renewables to become cheap without supporting the current renewables market is wishful thinking. For many decades, the renewable sector and the people working in it have been repeatedly courted, ignored and jilted. Experts and investors will not risk their time, money and careers trying to create better renewable technologies if the market demand is constantly dependent on the price of oil.

The Earthquake followed by a tsunami that devastated Japan back in March has spawned a veritable cleantech revolution, both on the research and governmental fronts.

Now Mitsubishi Chemical Corp has announced it has developed a spray-on solar power technology whereby solar cells can be applied to buildings, vehicles and even clothing, just like painting. The solar cells are very thin (less than 1 millimeter thick) and weigh less than one tenth of crystalline solar panels of the same size.

According to a report in the UK Independent newspaper, the solar cells use carbon compounds which as semiconductors when dried and solidified, generating electricity when exposed to light. The potential to save space required by conventional solar panels and the versatility of the technology could hail a new era for solar power.

Mitsubishi Chemical’s prototype spray-on solar cells offer a light-to-electricity conversion rate of 10.1 per cent. Traditional crystalline silicon solar cells offer up to 20 per cent, so the new technology still lags behind. But Mitsubishi said it hopes to improve efficiency to 15 per cent by 2015.

The company’s first plan is to apply its technology on cars, coating them with solar cells. It says it could give a car sufficient power to travel six miles after two hours of exposure to the sun.

Article by Antonio Pasolini, a Brazilian writer and video art curator based in London, UK. He holds a BA in journalism and an MA in film and television